Best’s Market Segment Report: Strong Technical Profits Bolster Momentum for Global Reinsurers

A market reset by global reinsurers designed to de-risk portfolios, realign relationships with primary carriers and improve pricing generated strong technical results for the segment in 2023, according to a new AM Best report.

These efforts have included a much-needed shift away from high-frequency layers, the adoption of tighter contract wording, and a better-defined scope of cover with the combined effect having repositioned reinsurers’ traditional role to focus on providing capital protection to cedents, rather than stabilize earnings.

The Best’s Market Segment Report, “Strong Technical Profits Bolster Momentum for Global Reinsurers,” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo. Other reports, including AM Best’s ranking of top global reinsurance groups and in-depth looks at the insurance-linked securities, Lloyd’s, health and regional reinsurance markets, will be available during August and September.

AM Best believes that hard pricing conditions in reinsurance are likely to last longer than in previous cycles for several reasons. Chief among those -- persistently high claims activity is being driven more by the accumulation of medium-sized losses and secondary perils than by single, major catastrophic events. The report also notes that the global reinsurance segment remains well-capitalized and these companies’ solvency positions have not been under meaningful pressure, apart from unrealized investment losses on fixed-income instruments which have reversed.

“The current hard cycle has not been characterized by capital depletion,” said Carlos Wong-Fupuy, senior director, AM Best. “Unlike previous hard cycles and despite the very attractive pricing environment, new company formations have not materialized, particularly in the property catastrophe space. Disappointing results during the previous, prolonged soft market deterred potential new investors.”

Following the market dislocation during the January 2023 renewals—after the uncertainty caused by Hurricane Ian just a few months earlier—AM Best observed an unequivocal change confirming the current hard market conditions. While benchmarking of reinsurers across the globe is now being challenged by the adoption of IFRS 17 accounting standards, the segment continues to expand and is producing return on equity at levels well in excess of their cost of capital. Meanwhile, combined ratios show very strong profit margins, more than offsetting concerns about adverse reserve development on certain legacy books of business, in particular U.S. casualty.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=345543.

A video discussion of this report also is available at http://www.ambest.com/v.asp?v=ambglobalre924&AltSrc=182 .

For future global reinsurance reports ahead of Rendez-Vous de Septembre, please visit Best’s Research.

Lastly, AM Best will host its annual reinsurance market briefing at Rendez-Vous de Septembre on Sept. 8, 2024, at 10:15 a.m. (CEST) in Monte Carlo. For more information, please visit http://www3.ambest.com/rd/rd.aspx?rd=RVDS2024.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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